Consumer credit agreements
Definition of the consumer credit agreement
A “consumer credit agreement” is an agreement signed between a creditor and a consumer where a creditor grants or promises to grant to a consumer a consumer credit in the form of a deferred payment, loan or other similar financial accommodation.
Consumer credits are in general intended to finance a good (for example, a car or a piece of furniture) or a service (for example a travel).
The provisions of the Consumer Code regarding consumer credit agreements do not apply to credit agreements where the total amount of the credit is less than 200 euros or more than 75.000 euros.
Consumer credit agreements are regulated by Chapter 4, Book 2, Title 2, of the Consumer Code.
It is to be noted that consumer credits can not be used to finance the acquisition of an immovable property (for example, the acquisition of a house or of a piece of land).
Persons concerned by consumer credit agreements referred to in the Consumer Code are:
- consumer credit intermediaries (cited by way of reminder).
These different persons have rights and obligations under the Consumer Code when they sign a consumer credit agreement and even before signing the said contract.
Information needed to be given to the consumer by the creditor
Before concluding a consumer credit agreement, the creditor must provide the consumer with information needed by the consumer to compare the different consumer credit proposals in order to make an informed decision.
This information is provided to the consumer by means of a standard European consumer credit information form.
This form includes in particular information related to:
- the type of credit proposed;
- the total amount of the credit and the conditions governing the drawdown;
- the duration of the credit agreement;
- the interest rate;
- the existence or absence of a right of withdrawal.
Assessment of the consumer’s creditworthiness
Before concluding a consumer credit agreement, the creditor shall assess the consumer’s creditworthiness on the basis of sufficient information.
The consumer must provide the creditor with all the information needed for the creditworthiness assessment, such as pending financial commitments (for example: ongoing credits) and the consumer’s ongoing income (for example: monthly pay, pension, etc.).
If the consumer resides in an other member state of the European Union, the creditor can consult, if needed, the relevant database of the Member State where the consumer has her/his habitual residence.
The consumer credit agreement is drawn up on paper or on an other durable medium, and each party is provided with a signed copy of the credit agreement.
Different pieces of information must be mentioned in the agreement, such as:
- the type of credit;
- the duration of the credit;
- the amount of the credit and the conditions governing the drawdown;
- the interest rate.
Type of interest rate
Credit consumer agreements can be concluded with a fixed interest rate or a variable interest rate.
Fixed interest rate
The fixed interest rate is a rate that will not vary depending on the credit agreement’s duration.
The fixed interest rate allows the consumer to know from the beginning the amount of monthly installments s/he will have to pay to her/his creditor. Thus, the consumer is protected against a potential increase in interest rates. However, if there is a decrease in interest rates, the consumer who has concluded a credit agreement with a fixed interest rate will not benefit from the decrease in interest rates.
Variable interest rate
The variable interest rate is a rate that varies upwards or downwards during the duration of the credit agreement.
The variable interest rate allows consumers to benefit from a decrease in interest rates. However, if there is a increase in interest rates, the consumer who has concluded a credit agreement with a variable interest rate will have to pay higher interest rates.
Right of withdrawal of 14 days
The consumer shall have a period of 14 calendar days to withdraw from the credit agreement without having to give any reason.
As the case may be, the consumer must also comply with the rules on the right of withdrawal indicated by the creditor.
Since the consumer must prove that s/he withdrew from the agreement, it is in the consumer’s interest to send a withdrawal in writing to the creditor, preferentially by registered mail with acknowledgment of receipt.
The withdrawal period begins to run from:
- either the day on which the credit agreement was signed;
- either the day when the consumer receives:
- the general conditions of the credit agreement: contractual clauses and conditions, etc., and;
- the information to be provided in the credit agreement if this day is posterior to the day on which the agreement was signed.
In order for the withdrawal to be taken into account, it must be sent to the creditor within a period of 14 days.
Early repayment right
At any time, the consumer has the right to repay fully or partially her/his consumer credit before the agreed termination of the agreement. In this case, we talk about the right of early repayment of the credit.
Early repayment procedure
When a consumer wishes to proceed with an early repayment of a consumer credit, the consumer shall notify her/his intention to the creditor on paper or on another durable medium.
Early repayment compensation to be paid to the creditor
In the event of an early repayment of the consumer’s credit agreement by the consumer, the creditor is, in principle, entitled to a compensation of early repayment.
The compensation of early repayment shall be fair and objectively justified by the incurred costs directly linked to the repayment of the credit.
In case of early repayment, the consumer may have to pay a compensation to the creditor, under the conditions that:
- the amount of the early repayment exceeds EUR 10.000 within a period of one year;
- the early repayment is made at a time where the interest rate is fixed.
Compensation for early repayment shall not be claimed:
- if the early repayment has been made under an insurance contract intended to provide a credit repayment guarantee ;
- in the case of overdraft facilities ; or
- if the repayment falls within a period for which the borrowing rate is not fixed.
The amount of the early repayment compensation can not exceed:
- 1% of the amount of credit repaid early, if the period of time between the early repayment and the agreed termination of the credit agreement exceeds one year ;
- 0,5% of the amount of credit repaid early if the period of time (between the early repayment and the agreed termination of the credit agreement) does not exceed one year.
The creditor may exceptionnally claim higher compensation if the creditor can prove that the loss it suffered from early repayment exceeds the amount determined by the law.
The compensation for early repayment to be paid to the creditor shall, however, not exceed the amount of interest the consumer would have paid during the period between the early repayment and the agreed date of termination of the credit agreement.
Out-of-court dispute resolution
The CSSF is competent in order to facilitate the out-of-court resolution of a dispute between a consumer and a creditor in case of a dispute concerning consumer credit agreement.
Mandatory nature of the provisions of the Consumer Code with regard to consumer credit agreements
The provisions of the Consumer Code with regard to consumer credit agreements are mandatory, which means that parties cannot foresee terms that are in contradiction with what is foreseen by the provisions of the Consumer Code.